Dolby Laboratories Reports FY 2009 Fourth Quarter and Year-End Financial Results

SAN FRANCISCO--(BUSINESS WIRE)--November 3, 2009--Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the fourth quarter and fiscal year ended September 25, 2009.

For the fourth quarter, Dolby reported total revenue of $163.9 million, compared to $163.1 million for the fourth quarter of fiscal 2008.

Fourth quarter net income was $44.3 million, or $0.38 per diluted share, compared to $48.6 million, or $0.42 per diluted share, for the fourth quarter of fiscal 2008.

For fiscal year 2009, Dolby reported total revenue of $719.5 million, compared to $640.2 million for fiscal year 2008, an increase of 12 percent. Net income for fiscal year 2009 was $243.0 million, or $2.11 per diluted share, compared to $199.5 million, or $1.74 per diluted share, for fiscal year 2008.

Reflected in Dolby’s fiscal 2009 earnings was a $20.0 million gain in the first quarter resulting from an amendment to a license agreement with an unrelated patent licensor, and $4.8 million in restructuring charges primarily related to the consolidation of our manufacturing operations.

“We had a solid fourth quarter and fiscal year,” said Kevin Yeaman, President and Chief Executive Officer, Dolby Laboratories. “In fiscal 2009, we made excellent progress with new wins in many of our markets, including broadcast, mobile, and personal computer, and we remain focused on growing the adoption of our surround sound solutions globally while bringing new technologies to market.”

For fiscal 2010, Dolby is targeting revenue of $720 million to $750 million, total gross margin of approximately 88 percent on a GAAP basis, and 89 percent on a non-GAAP basis. In addition, Dolby is targeting fiscal 2010 operating expenses of $313 million to $324 million on a GAAP basis and $280 million to $290 million on a non-GAAP basis, and a tax rate of approximately 35 percent on a GAAP basis and non-GAAP basis. Dolby’s non-GAAP measures exclude expenses related to stock-based compensation, the amortization of intangibles from business combinations, and restructuring charges.

These targets lead to a fiscal 2010 diluted earnings per share target range of $1.85 to $1.96 on a GAAP basis and $2.07 to $2.20 on a non-GAAP basis.

A reconciliation between GAAP and non-GAAP financial targets is provided at the end of this press release.

Members of Dolby management will lead a conference call open to all interested parties to discuss Dolby Laboratories’ Q4 and year-end fiscal 2009 financial results at 2:00 p.m. PT/5:00 p.m. ET on Tuesday, November 3, 2009.

Access to the teleconference will be available over the Internet at http://investor.dolby.com/medialist.cfm or by dialing 888-797-3001. International callers can access the conference call at 913-312-0684.

A replay of the call will be available beginning at 5:00 p.m. PT on Tuesday, November 3, 2009, until 9:00 p.m. PT on November 10, 2009 at 888-203-1112 (international callers can access the replay at 719-457-0820) and entering the confirmation code 4818739. An archived version of the teleconference will also be available on www.dolby.com.

To supplement Dolby’s financial statements presented on a GAAP basis, Dolby provides non-GAAP financial measures of gross margin, operating expense, tax rate, and diluted earnings per share. These measures are adjusted to exclude the charges and expenses discussed above. Dolby presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Dolby’s operating results in a manner that focuses on what Dolby’s management believes to be its ongoing business operations. Dolby’s management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the impact of stock-based compensation expense, amortization of acquired intangible assets through business combinations, restructuring charges, and the related tax impact of all of these items on the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Dolby’s business for planning and forecasting in subsequent periods. Dolby’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above. Investors are also encouraged to review Dolby’s GAAP financial statements as reported in its SEC filings.

Certain statements in this press release, including statements relating to Dolby's expectations regarding revenue, gross margin, operating expense, tax rate, and diluted earnings per share for fiscal 2010, the progress Dolby is making in its markets, the further adoption of Dolby surround sound solutions and other technologies, and the benefits that may be derived therefrom are “forward-looking statements” that are subject to risks and uncertainties. These forward-looking statements are based on management’s current expectations, and as a result of certain risks and uncertainties actual results may differ materially from those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the forward-looking statements: risks associated with the effects of the economic recession both domestically and internationally; risks associated with trends in the markets in which Dolby operates, including the DVD and Blu-ray Disc™, broadcast, personal computer, consumer electronics, gaming, mobile, and automobile markets; pricing pressures; the timing of Dolby's receipt of royalty reports and/or payments from its licensees; Dolby’s accuracy of calculation of royalties due to its licensors; Dolby’s ability to develop, maintain, and strengthen relationships with industry participants; Dolby’s ability to develop and deliver innovative technologies in response to new and growing markets in the entertainment industry; competitive risks; risks associated with conducting business in China and other countries that have historically limited recognition and enforcement of intellectual property and contractual rights; risks associated with the health of the motion picture industry generally; the development and growth of the market for digital cinema and digital 3D and Dolby’s ability to successfully penetrate this market; Dolby’s ability to expand its business generally, and to expand its business beyond sound technologies to other technologies related to digital entertainment delivery, by acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby’s Securities and Exchange Commission filings and reports, including the risks identified under the section captioned “Risk Factors” in its most recent Quarterly Report on Form 10-Q. Dolby disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

Dolby Laboratories (NYSE:DLB) is the global leader in technologies that are essential elements in the best entertainment experiences. Founded in 1965 and best known for high-quality audio and surround sound, Dolby creates innovations that enrich entertainment at the movies, at home, or on the go. Visit www.dolby.com for more information.

Dolby and the double-D symbol are registered trademarks of Dolby Laboratories. Blu-ray Disc is a trademark of Blu-ray Disc Association. S09/22074 DLB-F

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Fiscal Quarter Ended						Fiscal Year-to-Date Ended
	September 26, 2008			September 25, 2009			September 26, 2008			September 25, 2009
	(unaudited)
	(in thousands, except per share amounts)
Revenue:
Licensing	$	137,756		$	138,621		$	537,363		$	594,697
Product sales		18,586			20,223			72,284			95,967
Services		6,788			5,033			30,584			28,839
Total revenue		163,130			163,877			640,231			719,503

Cost of revenue:
Cost of licensing		3,623			3,580			15,802			14,803
Cost of product sales⁽¹⁾		9,806			10,444			39,455			57,220
Cost of services⁽¹⁾		3,120			3,240			12,520			12,786
Gain from amended patent licensing agreement		-			-			-			(20,041	)
Total cost of revenue		16,549			17,264			67,777			64,768
Gross margin		146,581			146,613			572,454			654,735
Operating expenses:
Selling, general and administrative⁽¹⁾		62,815			62,514			224,090			225,489
Research and development⁽¹⁾		17,082			18,079			62,080			66,710
Restructuring charges, net		-			835			-			4,847
Gain on settlements		-			(77	)		(499	)		(5,977	)
Total operating expenses		79,897			81,351			285,671			291,069
Operating income		66,684			65,262			286,783			363,666
Other income, net		4,750			1,959			15,019			7,753
Income before provision for income taxes and controlling interest		71,434			67,221			301,802			371,419
Provision for income taxes		(22,254	)		(22,518	)		(100,770	)		(127,073	)
Income before controlling interest		49,180			44,703			201,032			244,346
Controlling interest in net income		(621	)		(404	)		(1,574	)		(1,355	)
Net income	$	48,559		$	44,299		$	199,458		$	242,991


Basic earnings per share	$	0.43		$	0.39		$	1.79		$	2.15
Diluted earnings per share	$	0.42		$	0.38		$	1.74		$	2.11

Weighted-average shares outstanding (basic)		112,342			113,684			111,492			113,101
Weighted-average shares outstanding (diluted)		115,010			115,845			114,781			115,367


(1) Stock-based compensation included above was classified as follows:
Cost of product sales	$	183		$	93		$	853		$	564
Cost of services		51			30			177			115
Selling, general and administrative		4,110			5,076			17,267			17,309
Research and development		1,136			1,248			4,413			4,434

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 26, 2008		September 25, 2009
	(unaudited)
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	394,761	$	451,678
Short-term investments		119,667		283,808
Accounts receivable, net		27,650		22,981
Inventories		18,133		12,975
Deferred taxes		91,824		83,438
Prepaid expenses and other current assets		39,834		45,958
Total current assets		691,869		900,838

Property, plant and equipment, net		87,915		92,178
Intangible assets, net		83,060		82,035
Goodwill		250,356		261,121
Long-term investments		180,996		205,938
Deferred taxes		24,900		23,755
Other assets		17,050		15,450
Total assets	$	1,336,146	$	1,581,315

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	156,925	$	113,822
Income taxes payable		4,811		3,934
Current portion of long-term debt		1,593		1,624
Deferred revenue		37,344		37,204
Total current liabilities		200,673		156,584

Long-term debt		7,782		5,825
Deferred revenue		6,171		10,759
Deferred taxes		16,755		13,573
Other liabilities		33,414		31,469
Total liabilities		264,795		218,210

Controlling interest		22,098		21,997
Stockholders' equity:
Class A common stock		52		53
Class B common stock		60		60
Additional paid-in capital		434,907		478,979
Retained earnings		609,495		852,475
Accumulated other comprehensive income		4,739		9,541
Total stockholders' equity		1,049,253		1,341,108
Total liabilities and stockholders' equity	$	1,336,146	$	1,581,315

DOLBY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Quarter Ended						Fiscal Year-to-Date Ended
	September 26, 2008			September 25, 2009			September 26, 2008			September 25, 2009
	(unaudited)
	(in thousands)
Operating activities:
Net income	$	48,559		$	44,299		$	199,458		$	242,991
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,407			7,231			24,814			28,732
Stock-based compensation expense		5,102			6,207			22,332			21,758
Accretion of discounts/amortization of premium on investments		2,037			1,647			1,904			5,589
Excess tax benefit from exercise of stock options		(3,229	)		(2,279	)		(21,746	)		(5,827	)
Provision for doubtful accounts		168			244			935			1,392
Deferred taxes		(1,265	)		(14,595	)		(21,750	)		5,237
Gain on Put Rights		-			(56	)		-			(9,508	)
Unrealized losses on auction rate certificates		-			15			-			10,869
Gain from amended patent licensing agreement		-			-			-			(20,041	)
Other non-cash items affecting net income		(43	)		761			2,273			3,506
Changes in operating assets and liabilities:
Accounts receivable		17,268			26,491			987			1,797
Inventories		1,307			(3,783	)		(7,567	)		(3,638	)
Prepaid expenses and other assets		(9,105	)		(3,310	)		(18,640	)		(147	)
Accounts payable and accrued liabilities		14,297			2,882			33,874			(21,362	)
Income taxes, net		23,678			8,354			29,825			8,602
Deferred revenue		7,679			2,700			25,962			7,488
Other liabilities		(9,399	)		1,153			(5,187	)		(1,213	)
Payment on litigation settlement		-			-			(3,000	)		(3,000	)
Net cash provided by operating activities		102,461			77,961			264,474			273,225
Investing activities:
Purchases of available-for-sale securities		(91,069	)		(68,500	)		(304,097	)		(373,223	)
Proceeds from sale of available-for-sale and trading securities		16,244			78,923			299,376			176,908
Purchases of property, plant and equipment		(5,944	)		(4,758	)		(13,610	)		(13,994	)
Purchases of intangible assets		-			(1,250	)		-			(9,571	)
Acquisitions, net of cash acquired		129			-			(253,047	)		(16,621	)
Other		-			-			40			-
Net cash (used in) provided by investing activities		(80,640	)		4,415			(271,338	)		(236,501	)
Financing activities:
Payments on debt		(390	)		(401	)		(1,536	)		(1,522	)
Proceeds from exercise of stock options		2,637			4,306			13,553			13,716
Issuance of Class A common stock (ESPP)		-			37			1,133			3,502
Excess tax benefit from exercise of stock options		3,229			2,279			21,746			5,827
Net cash provided by financing activities		5,476			6,221			34,896			21,523
Effect of foreign exchange rate changes on cash and cash equivalents		(2,443	)		(295	)		(1,738	)		(1,330	)
Net increase in cash and cash equivalents		24,854			88,302			26,294			56,917
Cash and cash equivalents at beginning of period		369,907			363,376			368,467			394,761
Cash and cash equivalents at end of period	$	394,761		$	451,678		$	394,761		$	451,678

Fiscal Year 2010 Non-GAAP Financial Targets
(In millions, except per share data)

The following tables show the Company’s fiscal year 2010 non-GAAP financial targets reconciled to GAAP financial targets included in this release.

Gross margin:	Fiscal Year 2010

GAAP gross margin	88%
Stock-based compensation	0
Amortization of acquired intangibles	1
Non-GAAP gross margin	89%



Operating expenses:	Fiscal Year 2010
	Low	High

GAAP operating expenses	$313	$324
Stock-based compensation	(30)	(31)
Amortization of acquired intangibles	(3)	(3)
Non-GAAP operating expenses	$280	$290




Diluted earnings per share:	Fiscal Year 2010
	Low	High

GAAP diluted earnings per share	$1.85	$1.96
Stock-based compensation	0.26	0.27
Amortization of acquired intangibles	0.09	0.10
Income tax adjustments	(0.13)	(0.13)
Non-GAAP diluted earnings per share	$2.07	$2.20

Shares used in computing diluted earnings per share	116	115

CONTACT:
Dolby Laboratories
Alex Hughes, 415-645-4572 (Investor)
investor@dolby.com
David Yang, 415-645-5679 (Media)
dyang@dolby.com